World Petroleum Stocks Reflect Supply/Demand Imbalance

In 1996, world stocks were very low, but in 1997, production exceeded demand as Iraq returned to the export market and the Asian financial crisis slowed demand growth. Production exceeded demand through most of 1997 and 1998, building world stocks to very high levels and driving prices down. But the situation reversed in 1999.

Recently, there has been more petroleum demand than supply, requiring the use of stocks to meet petroleum needs. Following the extremely low crude oil prices at the beginning of 1999, OPEC and other producers agreed to remove about 6% of world production from the market in order to work off excess inventories and bring prices back up.

OPEC production cutbacks caused stocks worldwide, including those in the U.S., to be drawn down to very low levels. This imbalance was behind the climb in crude oil prices since early 1999.

In particular, refiners drew distillate stocks down in the fall (along with crude oil and other products), rather than build, as crude supply lagged and margins were squeezed by high crude oil prices.

We are now in the middle of winter -- the usual high point in world demand -- with low stocks. OPECís firm stance to not increase production, along with cold weather increasing demand, are behind the recent crude price increases. WTI broke $30 per barrel briefly the week ending January 21, and again the week ending February 18, and remains above that level.